Aflac Incorporated and Subsidiaries Quarterly Report on Form 10-Q For the Quarter Ended March 31, 2025
Aflac Incorporated reported its quarterly results for the period ended March 31, 2025. The companyās net earnings were $1.23 billion, or $2.29 per diluted share, compared to $1.14 billion, or $2.13 per diluted share, in the same period last year. Total revenues increased 4% to $5.43 billion, driven by a 6% growth in premiums and other revenues. The companyās operating earnings were $1.34 billion, or $2.51 per diluted share, up 5% from the same period last year. Aflacās book value per share increased 3% to $24.14, and its cash and investments balance stood at $14.4 billion. The companyās financial position remains strong, with a debt-to-capital ratio of 24.4% and a cash flow from operations of $1.3 billion.
Company Overview
Aflac Incorporated and its subsidiaries (the Company) provide financial protection to millions of policyholders and customers in Japan and the United States (U.S.). The Companyās principal business is supplemental health and life insurance products. The Companyās insurance business consists of two reporting segments: Aflac Japan and Aflac U.S.
Financial Performance Highlights
In the first quarter of 2025, the Company reported total revenues of $3.4 billion, compared to $5.4 billion in the first quarter of 2024. This decrease was primarily due to net investment losses of $963 million in the first quarter of 2025, compared to net investment gains of $951 million in the first quarter of 2024.
Net earnings were $29 million, or $0.05 per diluted share, in the first quarter of 2025, compared to $1.9 billion, or $3.25 per diluted share, in the first quarter of 2024. The decrease in net earnings was largely driven by the net investment losses.
Adjusted earnings, which exclude certain investment gains and losses, were $906 million, or $1.66 per diluted share, in the first quarter of 2025, compared to $961 million, or $1.66 per diluted share, in the first quarter of 2024. The weaker yen/dollar exchange rate negatively impacted adjusted earnings per diluted share by $0.01.
Shareholdersā equity was $26.3 billion, or $48.55 per share, at March 31, 2025, compared to $26.1 billion, or $47.45 per share, at December 31, 2024. The increase was primarily due to a cumulative increase of $3.9 billion from the effect of changes in discount rate assumptions on insurance reserves, partially offset by a net unrealized loss on investment securities and derivatives of $1.3 billion.
Shareholdersā equity excluding accumulated other comprehensive income (adjusted book value) was $28.2 billion, or $51.98 per share, at March 31, 2025, compared to $29.1 billion, or $52.87 per share, at December 31, 2024. Adjusted book value excluding foreign currency remeasurement was $23.1 billion, or $42.61 per share, at March 31, 2025, compared to $23.4 billion, or $42.46 per share, at December 31, 2024. The annualized adjusted return on equity excluding foreign currency remeasurement in the first quarter of 2025 was 15.6%.
Aflac Japan Segment
For the three-month period ended March 31, 2025, Aflac Japanās pretax adjusted earnings decreased 8.7% in yen terms, primarily due to decreases in net earned premiums and adjusted net investment income, partially offset by a decrease in total benefits and claims.
Net earned premiums decreased primarily due to an internal cancer reinsurance transaction and limited-pay products reaching premium paid-up status. Adjusted net investment income decreased primarily due to lower floating rate income and fixed-rate yen-denominated income.
Annualized premiums in force decreased 2.7% to Ā„1.20 trillion as of March 31, 2025, compared to Ā„1.23 trillion as of March 31, 2024, driven primarily by limited-pay products reaching premium paid-up status.
The total benefits and claims to total premiums ratio decreased, while the total adjusted expense ratio increased, resulting in a decrease in the pretax adjusted profit margin.
Aflac U.S. Segment
For the three-month period ended March 31, 2025, Aflac U.S.ās pretax adjusted earnings increased slightly, primarily due to an increase in net earned premiums and a decrease in total adjusted expenses, mostly offset by an increase in total benefits and claims.
Net earned premiums increased primarily due to higher net earned premiums from growth initiatives including group life and disability and consumer markets businesses. Adjusted net investment income decreased primarily due to lower floating rate income.
The total benefits and claims ratio to total premiums increased, while the total adjusted expense ratio decreased, resulting in a slight decrease in the pretax adjusted profit margin.
Corporate and Other
For the three-month period ended March 31, 2025, pretax adjusted earnings in Corporate and other increased primarily due to higher adjusted net investment income, partially offset by higher total benefits and adjusted expenses.
Adjusted net investment income increased primarily due to a lower volume of federal historic rehabilitation and solar tax credit investments, with offsetting tax benefits recognized, and higher Aflac Re consolidated investment income.
Investments
The Companyās investment strategy focuses on disciplined asset and liability management to seek long-term risk-adjusted investment returns and deliver stable income within regulatory and capital objectives.
Aflac Japan invests in a diversified portfolio of yen-denominated assets, U.S. dollar-denominated assets hedged back to yen, and unhedged U.S. dollar-denominated assets. Aflac U.S. invests in fixed maturity investments and growth assets, including public equity securities and alternative investments.
As of March 31, 2025, the Companyās investment portfolio consisted of $84.3 billion in fixed maturity securities, $0.8 billion in equity securities, and $17.1 billion in commercial mortgage and other loans, among other investments.
The Company has invested in commercial mortgage loans (CMLs) and transitional real estate loans (TREs), which have been affected by conditions in the commercial real estate market, with a greater impact on mortgages secured by office properties. The Company works with affected borrowers to resolve specific situations through loan continuance, loan sales, or the process of foreclosure or deed in lieu of foreclosure.
Hedging Activities
The Company uses derivative contracts to hedge foreign currency exchange rate risk and interest rate risk. Key hedging strategies include:
- Aflac Japan hedges U.S. dollar-denominated investments back to yen.
- Aflac Japan maintains certain unhedged U.S. dollar-denominated securities as an economic currency hedge.
- The Parent Company designates yen-denominated liabilities and foreign currency forwards and options as accounting hedges of its net investment in Aflac Japan.
- The Parent Company enters into foreign currency forwards and options to hedge foreign currency exchange rate risk related to dividend payments and reduce enterprise-wide hedge costs.
The Company also uses interest rate swaps and swaptions to mitigate interest rate risk for certain variable-rate investments.
Liquidity and Capital Resources
The Company consistently generates positive cash flows from operations and maintains a balance of cash and cash equivalents to satisfy both short-term and long-term cash requirements. As of March 31, 2025, the Company held $5.2 billion in cash and cash equivalents.
Aflac Japan and Aflac U.S. provide the primary sources of liquidity to the Parent Company through management fees and dividends. In the first three months of 2025, Aflac Japan paid $17 million in management fees and $759 million in dividends to the Parent Company.
The Company intends to maintain higher than historical levels of liquidity and capital at the Parent Company to address hedge costs and related potential need for collateral, and to mitigate against long-term weakening of the Japanese yen.
The Company also utilizes an intercompany reinsurance platform to execute internal reinsurance transactions with Aflac Re as part of enterprise-wide capital management and optimization.
Outlook and Risks
The Company faces several key risks that could affect its financial performance, including:
- Difficult conditions in global capital markets and the economy, including inflation
- Defaults and credit downgrades of investments
- Global fluctuations in interest rates and exposure to significant interest rate risk
- Concentration of business in Japan and limited availability of acceptable yen-denominated investments
- Foreign currency fluctuations in the yen/dollar exchange rate
- Ability to attract and retain qualified sales associates, brokers, employees, and distribution partners
- Deviations in actual experience from pricing and reserving assumptions
- Operational risks related to information technology systems and third-party vendors
- Changes in laws and regulations by governmental authorities
- Catastrophic events, including those related to climate change
The Company remains committed to prudent liquidity and capital management to navigate these risks and support the long-term success of its insurance operations in Japan and the U.S.
